In a Bull Market, The Most Hated Stock in a Sector Can Prove a Big Winner

Markets are fearful of inflation right now, as well as constraints from supply chain issues. That’s driving up the prices of commodities, some of which already had to deal with an imbalance between supply and demand.

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  • For investors, buying one of the worst-performing names in a sector undergoing a bull market with strong fundamentals can lead to better returns than buying a safer and more blue-chip name in the space.

    For the oil market, Occidental Petroleum (OXY) might be just such a winner for an ongoing oil boom. That’s because this major player has been hit with debt issues, and shares are still down over 50 percent from their last peak in early 2018, nearly 4 years ago.

    Yet shares are up 43 percent in the past year, nearly double the S&P 500. And at 12 times forward earnings, a continued oil boom could lead to far better returns for Occidental compared to other big players in the oil space.

    Action to take: Investors may like shares here, as the company has a reasonable valuation and has started to report quarterly profits again. However, the stock isn’t a huge yield play, with a mere 0.1 percent yield. That will have room to grow in an ongoing boom, but income-oriented energy investors may want to look elsewhere.

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  • For traders, the May $40 calls look inexpensive but still capable of moving in-the-money. Last going for about $2.15, this could be a big winner, potentially in the triple-digits as shares continue to move higher this year.

     

    Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.

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